CFTC Annual Report 1997

Office of the General Counsel

The Office of the General Counsel (OGC) is the Commission's legal
advisor. OGC attorneys represent the Commission in appellate litigation
and certain trial-level cases, including bankruptcy proceedings that
involve futures industry professionals. As legal advisor, OGC reviews all
substantive regulatory, legislative, and administrative matters presented
to the Commission. OGC advises the Commission on the application and
interpretation of the Commodity Exchange Act (CEA) and other
administrative statutes. Through its Opinions Program, OGC staff assists
the Commission in performing its adjudicatory functions.

Litigation

During FY 1997, 44 cases were pending before United States Courts of
Appeals. Significant cases included the following.

Appellate Litigation Involving the Commission's Enforcement
Program

Dunn v. CFTC, 117 S. Ct. 913 (1997). In this matter, the
Supreme Court found that foreign currency options were ''transactions
in foreign currency'' for purposes of the Treasury Amendment
exclusion to the CEA, 7 U.S.C. § 2(ii). The Commission brought an
enforcement action against Dunn and others for allegedly defrauding the
general public in connection with the sale of foreign currency options.
The district court rejected the defendants' argument that the
Treasury Amendment excludes options involving foreign currencies from the
scope of the CEA. On appeal, the Second Circuit held that an option was
not a transaction in foreign currency until it is exercised and therefore
not in the purview of the Amendment. The Supreme Court discarded that
rationale and found that under the plain language of the statute,
currency options represent transactions in foreign currency and are
excluded by the Treasury Amendment unless traded on a board of trade. The
Court, however, did not reach the question of what constitutes a board of
trade.

Castellano v. CFTC, No. 96-4174 (7th Cir. 1996). A
Commission administrative decision denied a former floor broker's
application for registration as a floor trader and restoration of his
floor broker registration. In his petition for review, Castellano argued
that his evidence of rehabilitation was sufficient to rebut the
presumption of his unfitness for registration. The presumption of
unfitness stemmed from the Commission's prior revocation of his
floor broker registration and his involvement in multiple exchange
disciplinary proceedings. Castellano also argued that the
Commission's denial of his registration application violated the
Double Jeopardy Clause. The case is fully briefed and awaiting decision.

Grossfeld and Stein v. CFTC, No. 96-5525 (11th Cir. 1996).
This petition for review arose from an administrative enforcement
complaint brought by the Commission against Grossfeld and Stein. The
complaint charged Grossfeld and Stein with violations of the anti-fraud
and supervisory provisions of the Act and CFTC regulations in connection
with the solicitation of commodity option transactions and the
maintenance of commodity option accounts. The Commission's opinion
imposed a civil monetary penalty of $1.8 million against Grossfeld and
$500,000 against Stein. In their appeal to the Eleventh Circuit,
Grossfeld and Stein argue that the imposition of sanctions upon them by
the Commission following a fine assessed them by the National Futures
Association violates the Double Jeopardy Clause. The case is fully
briefed and is awaiting decision.

LaCrosse v. CFTC, No. 97-1239 (7th Cir. 1997). LaCrosse, a
floor broker, appealed a Commission administrative decision that found he
had engaged in fraudulent conduct on the floor of the Chicago Board of
Trade. The Commission imposed a cease and desist order, revoked his
registration, and banned him from trading for a period of five years.
LaCrosse had previously pled guilty to a felony violation and a
misdemeanor violation of the Act in a criminal proceeding. The case
represents one of the first enforcement actions brought by the Division
of Enforcement implementing Section 9(b) of the CEA, 7 U.S.C.
§13(b). The case is fully briefed and awaiting decision by the
Seventh Circuit.

Ryan v. CFTC, No. 97-2120 (7th Cir. 1997). This petition
for review arose from a Commission opinion and order in which the
Commission concluded that Ryan failed to make a clear and convincing
showing that his registration as a floor trader would pose no substantial
risk to the public. Based upon evidence that Ryan is subject to statutory
disqualification from registration under Section 8a(2) of the CEA, 7
U.S.C. §12a(2), the Commission denied his application for
registration. The Commission also determined, based upon Section 9(b) of
the CEA, 7 U.S.C. §13(b), that Ryan should be prohibited from
trading for six years. In both instances, the Commission concluded that
Ryan had failed to overcome the statutory presumption that, due to his
four felony convictions (including three criminal violations of Section
4b of the Act, 7 U.S.C. §6b, and one felony wire fraud conviction)
and one misdemeanor violation of the CEA, he would pose a substantial
risk to the public. The matter has been fully briefed and is awaiting
oral argument.

Wong v. United States of America, et al., No. 96-1998 (9th
Cir. 1997). This is an appeal from an August 16, 1996, order entered by
the United States District Court for the Central District of California.
The court dismissed with prejudice the complaint filed by Wong against
the Commission, a former CFTC regional counsel, and certain State of
California parties on the grounds that the district court lacked
jurisdiction over the subject matter of the action and the complaint
failed to state claims upon which relief could be granted. In his
complaint, Wong sought to vacate consent orders entered in two federal
district court injunctive cases and a CFTC administrative enforcement
action settling Wong's liability for his participation in the
off-exchange sale to the public of foreign currency and precious metal
futures contracts. Wong also sued to recover damages, contending that he
had been fraudulently induced to enter into the settlements. On appeal,
Wong argues that CFTC v. Frankwell Bullion Ltd. (discussed above),
which held that the CEA's Treasury Amendment exempts off-exchange
foreign currency futures transactions from Commission jurisdiction,
should be applied retroactively to invalidate the settlements. The case
is fully briefed and is awaiting decision.

Appellate Litigation Involving the Commission's Reparations
Program

Gilbert v. CFTC, No. 96-70580 (9th Cir. 1996). This
petition for review involves a customer's claim that a futures
commission merchant (FCM) violated the anti-fraud provisions of the Act
in connection with trading his account. The Commission issued an order
affirming a judgment officer's dismissal of Gilbert's complaint
on the basis that he failed to sustain his burden of proving that the FCM
violated Section 4b of the Act in connection with filling an order. This
case is fully briefed and awaiting decision by the Ninth Circuit.

Elek M. and Margaret Lehoczky v. CFTC, et al., No. 97-4181
(2d Cir. 1997). In this matter, the Second Circuit denied the
Lehoczkys' petition for review of two Commission orders. The
Commission orders dismissed two customers' reparations complaint
against an FCM, an IB, and two associated persons (AP). In its two
orders, the Commission found that the complainants did not prove their
claims of churning, fraudulent solicitation, failure to supervise,
unauthorized trading, bad faith margin calls, or misrepresentation of the
risks of option trading. In its unpublished summary order, the Court held
that the weight of the evidence supported the Commission's decisions
and that the petitioners failed to demonstrate any procedural
irregularities.

Other Litigation

AVCO Financial Corp. v. CFTC, No. 96 Civ. 2853 (JGK)
(S.D.N.Y. 1996), appeal withdrawn, No. 96-6330 (2d Cir. 1996). In
this injunctive and declaratory judgment action, the publisher of
computer software designed to chart foreign currency futures sought to
enjoin a Commission investigation. The Commission was investigating
whether the company acted as an unregistered commodity trading advisor
(CTA) by marketing its currency trading system. The publisher asserted
that its trading recommendations constituted impersonal investment advice
exempt from regulation under the Act and that any effort to regulate its
activities constituted an abridgement of its First Amendment right of
free speech. The district court on June 5, 1996, denied the
publisher's request for a preliminary injunction. The court found
that the publisher had failed to establish irreparable injury to its
business and that the Commission was entitled to complete its duly
authorized investigation to ascertain all the facts surrounding the
publisher's activities. 929 F. Supp. 714 (S.D.N.Y. 1996).
Thereafter, on November 22, 1996, the district court dismissed the
publisher's action in its entirety on the grounds that, under the
doctrine of sovereign immunity, it lacked jurisdiction to review the
Commission's investigation and that the publisher's claims were
otherwise not ripe for adjudication.

Commodity Trend Service, Inc. v. CFTC, No. 97-C-2362 (N.D.
Ill. 1997). This declaratory judgment action arose from a Commission
investigation into whether Commodity Trend Service, Inc. (CTS) or its
principals acted as unregistered CTAs or engaged in fraud. CTS sought a
declaration that the CTA registration requirement of the CEA violates the
First Amendment right of free speech. On July 29, 1997, the district
court issued an order rejecting the request for a declaratory judgment on
the basis that the issue was not ripe for judicial resolution in the
absence of any administrative action having been taken by the Commission
against CTS. The court also ruled that CTS could not bring a facial
challenge to the CTA registration requirement because facial challenges
on First Amendment grounds do not apply to commercial speech. On
September 8, 1997, the district court denied CTS's request for
reconsideration.

Peltz v. SHB Commodities, Inc., et al., No. 96-7401 (2d
Cir. 1997). On May 15, 1997, the Second Circuit issued a decision
affirming a district court's dismissal of Peltz's claims under
the CEA against SHB, an FCM, and granting SHB's cross-claim. Peltz
had claimed that SHB violated Commission Rule 166.2 by failing to obtain
proper authorization to allow a third party to trade his account. The
Second Circuit found that SHB was not liable for the trades since the
third party had actual authority to trade Peltz's account. The
Commission accepted the court's invitation to file an amicus
brief and addressed two CEA-related issues regarding the scope of Rule
166.2, 17 CFR 166.2 (1997), and the issue of ratification. The Commission
argued that neither Rule 166.2, by its terms, nor applicable case law
supported Peltz's contention that an FCM was required to obtain
written authority from a customer before executing trades from the
customer's third party agent. On the issue of ratification, the
Commission advised the court that under Commission case law ratification
requires clear and unequivocal proof of a knowing adoption of wrongful
conduct. In issuing its decision, the court stated that its ''views
accorded with the CFTC's position.''

In re Jay Lee Blevins, No. 96-08571-6BJ, Adversary
Proceeding No. 97-179 (Bankr. M.D. Fla. 1996). On or about December 26,
1996, the debtor, Jay Lee Blevins, an AP of an unregistered CPO, filed a
petition for relief under Chapter 13 of the Bankruptcy Code, converting
the case shortly thereafter to a Chapter 7 liquidation. The Commission
has a claim against Blevins based on a disgorgement judgment of $315,859,
plus $61,758 in prejudgment interest, entered in its civil injunctive
action, CFTC v. Dominick, et al., No. 94-CIV-ORL-18 (M.D. Fla.
1994) (holding, after a trial on the merits, that Blevins committed fraud
in violation of the CEA, 7 U.S.C. §§ 6b and 6o). On this basis,
on May 7, 1997 the Commission filed a proof of claim against Blevins for
disgorgement of $377,616.51, plus post-judgment interest of 5.67 percent
per year.

On May 9, 1997, the Commission initiated this proceeding seeking a
determination that Blevins's disgorgement debt is nondischargeable
under Bankruptcy Code Section 523(a)(2)(A) as money obtained by fraud and
false misrepresentations and under Section 523(a)(4) as money obtained by
fraud or defalcation while acting in a fiduciary capacity. Blevins
responded by filing a motion to dismiss the Commission's proceeding.
The Commission opposed the debtor's motion, arguing that, as the
holder of a judgment of disgorgement, the CFTC is a creditor with
standing to seek a determination of nondischargeability under 11 U.S.C.
§§ 523(a)(2)(A) and 523(a)(4). The court denied Blevins's
motion to dismiss on August 4, 1997. The Commission intends to move for
summary judgment in this adversary proceeding.

Legal Advisor

Significant Regulatory Activities

As the Commission's legal advisor, OGC drafts or reviews legal
memoranda to the Commission, proposed regulations, enforcement actions,
special reports to Congress, legislative proposals, responses to requests
from other federal agencies, proposed interpretive and no-action letters,
applications to trade futures and option contracts, and proposals to
amend exchange bylaws or rules. In FY 1997, OGC reviewed more than 90
matters related to enforcement actions, investigations of illegal
activity, and complaints in administrative or judicial actions; over 30
applications to trade futures or option contracts; and approximately 130
exchange rule amendments.

The growing international nature of futures and option markets continued
to impact OGC's work. Through the review of numerous interpretive
letters and Commission orders, OGC assisted the Division of Trading and
Markets in implementing rules governing the offer and sale of foreign
futures and option contracts in the United States. During FY 1997, OGC
issued two no-action letters regarding the offer or sale within the
United States of foreign futures contracts based on foreign stock
indices. OGC also worked closely with the Division of Enforcement to
establish information-sharing agreements with foreign financial market
regulators and with the Divisions of Trading and Markets and Enforcement
and the Office of International Affairs in their activities involving the
International Organization of Securities Commissions (IOSCO).

Pursuant to exemptive authority granted to the Commission by the
Futures Trading Practices Act of 1992, OGC has helped the
Commission to analyze requests for exemptions from various requirements
of the CEA and Commission regulations for certain exchange-traded futures
and option contracts.

During FY 1997, OGC advised the Commission on issues raised under the
Freedom of Information, Privacy, and Government in the Sunshine Acts. It
also assisted the Commission in complying with the Regulatory Flexibility
and Paperwork Reduction Acts.

OGC is responsible for all matters relating to the Commission's
ethics standards and compliance with its Code of Conduct and the Office
of Government Ethics (OGE) government-wide ethics regulations, including
the provision of annual ethics training for CFTC employees as required by
OGE regulations.

OGC continued to advise the Commissioners who chair the Commission's
advisory committees on procedural and substantive matters. The Advisory
Committee on CFTC-State Cooperation provides advice to the Commission on
matters of joint concern to the states and to the Commission. The
Agricultural Advisory Committee provides advice on issues affecting
agricultural producers, processors, lenders, and others interested in or
affected by the agricultural markets. The Financial Products Advisory
Committee provides advice on issues concerning financial futures and
option markets regulated by the Commission.

Some of the Commission's significant decisions during the past fiscal
year include the following cases.

Cases Involving Prohibitions on Trading Under Section 9(b) of the
Act

The Commission brought administrative enforcement proceedings against
traders and brokers on markets regulated by the Commission after their
conviction and criminal sentencing by United States district courts. In
these cases, the Commission for the first time applied the requirement in
Section 9(b) of the Act that persons convicted of specific felonies shall
be barred for five years or longer from participating in markets
regulated by the Commission. In each case, on appeal from a decision of
an Administrative Law Judge (ALJ), the Commission independently assessed
the factual record, including evidence of the gravity of the wrongdoing,
mitigation, and rehabilitation, and imposed sanctions accordingly.

Several of these Section 9(b) cases had their genesis in a sting
operation conducted by the CFTC and the FBI during 1987-1988 in the
Japanese Yen and Swiss franc futures pits of the Chicago Mercantile
Exchange.

In In re Baker, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶ 27,065 (CFTC May 28, 1997), Baker appealed a decision
of an ALJ. The ALJ found that, by reason of Baker's criminal
conviction for a felony violation of Section 4b of the Act, he was
statutorily disqualified from registration. The ALJ revoked Baker's
registration as a floor broker and imposed a five-year trading ban. The
Commission affirmed the revocation of the registration and ordered Baker
to show cause why a seven-year trading ban should not be imposed.

In In re Crouch, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶ 27,114 (CFTC July 14, 1997), both the Division of
Enforcement and Crouch appealed the initial decision revoking
Crouch's registration as a floor broker and imposing a five-year
trading ban based upon Crouch's criminal conviction of a violation
of Section 4b of the Act. The Commission affirmed.

In re Marren, [Current Transfer Binder] Comm. Fut. L. Rep.
(CCH) ¶ 27,098 (CFTC June 26, 1997), also involved the yen and Swiss
franc sting operation. The Division of Enforcement appealed from a
decision of an ALJ revoking Marren's registration as a floor broker.
The Division believed that the ALJ's decision as written could be
interpreted to entitle respondent to reregistration after five years. The
Commission held that a registration revocation continues until
specifically terminated by the Commission after consideration of an
application by the revoked registrant. The Commission also held that
registration will be conferred only upon a revoked registrant who shows
that he or she poses no threat to the markets.

Other Section 9(b) cases adjudicated by the Commission during FY 1997
originated with a sting operation conducted by the CFTC and the FBI
during 1987-1988 in the soybean pit of the Board of Trade of the City of
Chicago.

In In re Fetchenhier, [Current Transfer Binder] Comm. Fut.
L. Rep. (CCH)¶ 27,055 (CFTC May 8, 1997), the respondent appealed
from a decision of an ALJ denying him registration as a floor trader and
imposing a five-year trading prohibition. In light of his conviction of
four felonies, the Commission denied Fetchenhier's application for
registration and ordered him to show cause as to why it should not impose
a ten-year trading prohibition on him.

In In re Kenney, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶ 26,992 (CFTC Mar. 11, 1997), the Division appealed from
an ALJ's decision. In that decision, the ALJ refused permanently to
prohibit respondent from trading on markets regulated by the Commission,
even though Kenney was convicted of ten felony and two misdemeanor
violations of Section 4b of the Act. The Commission imposed a permanent
trading ban.

In In re Ryan, [Current Transfer Binder] Comm. Fut. L. Rep.
(CCH) ¶ 27,049 (CFTC Apr. 25, 1997), the Division appealed from an
ALJ's decision granting respondent's application for
registration as a floor trader and refusing to prohibit him from trading
on markets regulated by the Commission. In view of Ryan's
convictions of one misdemeanor and four felony violations, the Commission
denied his floor trader registration application and imposed a trading
ban of six years. Ryan has appealed the Commission's decision.
Ryan v. CFTC, No. 97-2120 (7th Cir., pet. for review filed May 8,
1997).

In In re Schneider, [Current Transfer Binder] Comm. Fut. L.
Rep. (CCH) ¶ 26,959 (CFTC Feb. 13, 1997), Schneider appealed from an
ALJ's decision permanently prohibiting him from trading on the
markets regulated by the Commission due to his convictions for 14 felony
violations of Section 4b of the Act. The Commission affirmed.

In re Grossfeld and Stein, [Current Transfer Binder] Comm.
Fut. L. Rep. (CCH) ¶ 26,921 (CFTC Dec. 10, 1996). Respondents
appealed a decision of an ALJ imposing civil money penalties as a
sanction for their violations of the anti-fraud and supervisory
provisions of the Act and the Commission's regulations. The
Commission found that respondents were involved in a solicitation fraud
scheme in which customers lost at least $2 million. The Commission also
found that Grossfeld, as principal of the involved FCM and IB, was
responsible for their fraudulent practices. The Commission performed its
own assessment of the evidence. The Commission concluded that respondents
had waived a net worth hearing and that the record supported the
imposition of civil money penalties of $1.8 million on Grossfeld and
$500,000 on Stein. Respondents have appealed the Commission's
decision. Grossfeld and Stein v. CFTC, No. 96-5525 (11th Cir.,
pet. for review filed Dec. 24, 1996).

In re Clark, [Current Transfer Binder] Comm. Fut. L. Rep.
(CCH) ¶ 27,032 (CFTC Apr. 22, 1997), appeal pending, No.
97-4228 (2d Cir., filed Aug. 8, 1997). The respondent floor broker
appealed from the ALJ's decision revoking his registration under
Section 8a(3)(M) of the Act, a catchall provision authorizing adverse
action against a registrant for ''good cause.'' The Division
alleged that Clark was disqualified for registration based on nine
exchange disciplinary actions of varying severity. The ALJ declined to
give the exchange decisions collateral estoppel effect and required the
Division to prove the underlying conduct. The ALJ's initial decision
found that the underlying conduct proved in two of the nine exchange
actions violated the antifraud provisions of Section 4b of the Act and
were a sufficient basis to revoke Clark's registration. He found the
other alleged misconduct unproved. On cross-appeals by Clark and the
Division, the Commission affirmed the violations of Section 4b. However,
the Commission also held that the ALJ erred in ruling that an exchange
disciplinary action can never be given collateral estoppel effect to
establish a statutory disqualification under Section 8a(3)(M). The
Commission articulated that in Section 8a(3)(M) cases based on exchange
disciplinary actions, a registrant is presumptively disqualified under
Section 8a(3)(M) when he or she ''has been involved in a pattern [two
or more] of exchange disciplinary actions over several years alleging
serious rule violations and resulting in the imposition of significant
sanctions . . . ''

In re Rousso, [Current Transfer Binder] Comm. Fut. L. Rep.
(CCH) ¶ 27,133 (CFTC Aug. 20, 1997). Respondents appealed an
ALJ's decision finding them liable for 143 noncompetitive futures
transactions in the New York Mercantile Exchange's crude oil
contracts pit. The ALJ found that respondents operated a noncompetitive
trading network for their own profit at the expense of customers. Based
on its independent assessment of the record, the Commission concluded
that the record supported the ALJ's liability findings and warranted
revocation of respondents' registrations, imposition of ten-year
trading bans on each of the respondents, and civil monetary penalties of
$200,000 for respondent Rousso, $100,000 for respondent McGoldrick, and
$50,000 for respondent Reidy. Respondents have appealed the
Commission's decision. Rousso, et al. v. CFTC, No. 97-4232(L)
(2d Cir., pets. for review filed Aug. 12 and 13, 1997).

In re Grain Land Cooperative, In re Roger J. Wright, In re Southern
Thumb Co-op, Inc., CFTC Docket Nos. 97-1, 97-2, and 97-3 (CFTC
Sept. 12, 1997). In these three related applications for interlocutory
review, the Commission addressed ex parte communications and
separation of functions issues. The respondents claim that Division
attorneys improperly discussed the merits of the cases with the
Commission between the time the Commission voted to authorize the
complaint and the date on which the complaints were signed by the
Commission's Secretary and filed with the Proceedings Clerk. The
Commission held that no ex parte violations occurred under either
the Administrative Procedure Act or the Commission's rules because
the plain language of both prohibits only communications between
Commission decisionmakers and persons ''outside'' the agency. The
Commission held further that, while separation of functions rules
prohibit contacts between prosecutorial employees and decisionmakers
within an agency, those rules apply to prevent a prosecutor from
participating in the decision of a case or from advising a decisionmaker.
The Commission held that in the instant cases, the challenged
communications occurred before the complaint had been filed and served
and before any proceedings in the cases had occurred. Since the decisions
in these cases would be made at a point in time remote from the
challenged communications, the Commission ruled that no violation of
separation of functions rules occurred. Based on this reasoning, the
Commission granted the Division's application for review in Roger
J. Wright (in which the ALJ had held that ex parte and
separation of functions violations appeared to have occurred) and
reversed the ALJ's holding. The Commission denied respondents'
applications for review in Grain Land Cooperative and Southern
Thumb Co-op (in which a different ALJ found no violations of these
principles).

Cases Involving the Commission's Reparations Program

Williams v. Lind-Waldock & Company, [Current Transfer
Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,111 (CFTC July 10, 1997).
Respondent liquidated complainant's undermargined futures account
over a holiday weekend through an exchange of futures for physicals (EFP)
transaction. The ALJ awarded damages and respondent appealed. The sole
issue on appeal was whether Lind-Waldock acted properly in using an EFP
to liquidate the position. An EFP is a two-step transaction involving a
futures purchase and sale, and a cash purchase and sale. EFPs are an
exception to the general rule that all futures transactions must be
openly and competitively executed. The Commission found that in this case
the transaction used to liquidate complainant's position was not a
bona fide EFP and violated Commission Rule 1.38 against noncompetitive
trading. Accordingly, it affirmed the initial decision, while modifying
the damage award.

Ahlstedt v. Capitol Commodity Services, Inc., [Current
Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,131 (CFTC Aug. 12,
1997). The Judgment Officer (JO) dismissed complainant's wrongful
liquidation claim. The Commission determined that the JO erred in finding
that complainant had not mitigated his damages by failing to reenter the
market. The Commission remanded the case to the JO to first determine
whether there had been a wrongful or unauthorized liquidation and, if so,
to assess damages.

Hinch v. Commonwealth Financial Group, Inc., [Current
Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,056 (CFTC May 13,
1997). The Commission affirmed the JO's $13,651 damage award to
complainants, whose commodity options account had been churned. The
Commission determined that the AP who handled the account had exercised
de facto control over the unsophisticated complainants'
trading decisions. The Commission also concluded that the AP executed
trades for the account without any regard for complainants' trading
objectives and that the trades were motivated by the AP's desire to
generate commissions. Under these circumstances, the Commission deemed
the number of trades excessive. Finally, the Commission agreed with the
JO that complainants' trading losses, rather than the amount they
had paid in commissions, was the appropriate measure of damages because
their account had been exposed to unnecessary market risk.

Cases Involving Adjudicatory Actions by the National Futures
Association

Commonwealth Financial Group, Inc. v. National Futures
Association, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH)
¶ 26,993 (CFTC Mar. 18, 1997), appeal pending, No. 97-4506
(11th Cir., filed Apr. 1, 1997). The NFA instituted a member
responsibility action against Commonwealth based on allegations that for
the two preceding years Commonwealth had aired deceptive radio
advertisements and employed sales representatives who made deceptive
telephone solicitations. A member responsibility action is a summary
proceeding that allows the NFA to issue temporary remedial sanctions
against a registrant to protect the public. The NFA can take such action
without notice and a hearing if necessary. On appeal, Commonwealth argued
that the NFA failed to show the existence of an imminent threat to the
public or other emergency. The Commission held that the NFA gave
Commonwealth fair notice and a sufficient hearing prior to the imposition
of remedial sanctions. Finding that the evidence adduced at the hearing
showed that Commonwealth had engaged in widespread, continuing customer
fraud, the Commission held that Commonwealth's conduct warranted the
use of a member responsibility action.

Grandview Holding Corp. v. National Futures Association,
[Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 26,996 (CFTC
Mar. 18, 1997). Petitioners appealed from an NFA decision holding that
they could not withdraw their settlement offer after the NFA's
hearing panel had orally accepted the offer. The NFA rules provide that
the hearing panel must issue a written decision accepting an offer of
settlement. The panel then furnishes the settlement offer to the
NFA's president. A settlement offer becomes ''final and
binding'' 15 days after the date the panel issues the offer unless
the president refers the matter to the appeals committee for review. The
Commission held that under the plain language of the NFA's rules,
respondents could withdraw a settlement offer any time within the 15-day
period following the issuance of the hearing panel's written
decision. The Commission further held that if the president referred the
matter to the appeals committee, the respondents could withdraw the offer
at any time prior to that committee's final decision. Accordingly,
it reversed the NFA's decisions, vacated the settlement, and
remanded the matter for further proceedings.